A life estate deed lets you leave your home to a beneficiary without having to go through probate. The home automatically passes to the beneficiary you name on the deed. Having a life estate deed eliminates the need to put the property up for sale and find a buyer. Since no money changes hands, the property transfer does not automatically trigger a property tax re-evaluation, but life estate deeds present other tax issues you want to consider along with the property taxes.
Life Estate Deeds
The two parties to a life estate deed are the life tenant and the remainderman. As the life tenant, you retain the right to live in your home for the rest of your life. Your remainderman, or beneficiary, cannot move into your house or take title to the property without your consent. For your part, you must maintain the home in good condition and make any repairs as needed. You must timely pay the property taxes, homeowners association fees, and municipal assessments against the property.
Life Estate Property Tax
The amount of property tax you pay does not change when you execute a life estate deed. It remains the same unless the county property appraiser re-evaluates the taxable value of your home. You can lower your property taxes by claiming all the exemptions for which you qualify. For example, Florida allows you to claim a senior exemption when you turn 65. This exemption lowers the taxable value of your home by an additional $500.
Beneficiary Tax Reevaluation
Your beneficiary must file for homestead exemption if he wants to make the home his primary residence. Your beneficiary may see the property taxes increase if he loses some of the exemptions that you claimed. For example, he cannot claim the senior exemption or disability exemption if he does not meet the requirements. The property taxes can increase if the property appraiser reassesses the property value. In this case, he can request that the county re-evaluate the increased property value to determine if the higher tax is justified.
Gift Tax Consideration
When you use a life estate deed, you essentially give your home to your beneficiary. If the current value of your home exceeds the gift tax exclusion, you must file a federal gift tax return. At the time of publication, the tax-free gift amount is capped at $14,000 per year per beneficiary. You must file your gift tax return by April 15 in the year after you executed the life estate deed. You may owe additional taxes if you made numerous gifts to multiple beneficiaries during the tax year.
- Elder Law and Estate Planning: The Life Estate Deed
- Pinellas County Property Appraiser: Exemptions
- Pinellas County Clerk of the Court: Value Adjustment Board
- IRS Small Business & Self-Employed: Frequently Asked Questions on Gift Taxes
- IRS Small Business & Self-Employed: Filing Estate and Gift Tax Returns
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